Morningstar | Memory Headwinds Don’t Hamper Our Positive Outlook for Lam Research Beyond 2019
Lam Research reported fiscal second-quarter results consistent with our expectations, while new CEO Tim Archer projects wafer fab equipment spending in 2019 will be down in the mid- to high-teens. We note this is consistent with our view on WFE in 2019, with memory down significantly and logic/foundry serving as a partial offset. We are maintaining our fair value estimate of $185 per share for narrow-moat Lam. Despite the near-term headwinds related to weaker NAND and DRAM investments, we believe Lam is well positioned to resume healthy growth in 2020 and beyond as its etch and deposition offerings are critical to enabling future process technologies.Second-quarter revenue was up 8% sequentially to $2.52 billion. Specifically, memory sales were slightly below $2 billion in support of higher layers of 3D NAND (96-layers). Meanwhile, logic and foundry revenue was about $530 million for the quarter, and we foresee Lam’s revenue from these segments trending up over 2019 as major chipmakers such as TSMC and Intel ramp their latest process nodes. In fact, Archer noted Lam extended its high aspect ratio etch leadership with critical wins for metal interconnect and spacer applications at a leading logic customer (which we assume is Intel in its 10-nanometer process). While Lam has historically been leveraged to the memory markets (79% of revenue for the quarter), we expect logic and foundry exposure to increase over time as chipmakers utilize more etch tools from Lam for multiple patterning purposes. Gross margins were 45.4%, flat sequentially as greater volume was offset by a less favorable product mix. Management expects fiscal third-quarter sales to be at a midpoint of $2.4 billion, implying a 5% sequential decline.
For more information on our thoughts on the WFE space in 2019 and beyond, please see our recent Technology Select Presentation: “Buy the Chip Equip Dip.â€
Lam Research is a supplier of wafer fabrication equipment and services to the semiconductor industry. The company designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company's customer base includes semiconductor memory, foundry, and integrated device manufacturers that make products such as non-volatile memory, dynamic random-access memory, and logic devices. The company's services include customer service, spares, improvement, and refurbishment of its deposition, etch, and clean products. The company sells its products and services to companies in the United States, China, Europe, Japan, Korea, Southeast Asia, and Taiwan.
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